How to start a business in Australia

Starting a business in Australia has never been easier. While it can be a bit daunting, with a some help from an Accountant, it can also be incredibly rewarding. If you’re thinking about starting your own business, there some critical steps you need to cover off first.

Step 1: Do your research

Before you do anything else, it’s important to do your research and make sure that starting or buying a business is right for you. There are a lot of factors to consider, such as your skills, experience, and finances. You should also research the industry you’re interested in and the competition you’ll be facing.

We advise doing some research around your proposed business name, web address, social media tags etc to ensure you can run with the name that you desire.

Due Diligence – This is a specific process that you use when buying a business. We provide this service to clients to give them an independent analysis of the business that they are looking to buying. We fact check the information given by the selling party and give our opinion on the price that you should pay.

Book a meeting with us to discuss the business you are looking to buy.

Step 2: Develop a Business Plan

Remember the old military adage – The 5 Ps: Proper Planning Prevents Poor Performance

A Business Plan is a roadmap for your business. You can’t just wing it and hope for the best. Your Business Plan should include information about:

  • your product or service; why will people or businesses buy from you?
  • market analysis; who are your competitors and what is the future of your market?
  • marketing strategy; how will you get the word out?
  • SWOT analysis – Strengths | Weaknesses | Opportunities | Threats;
  • finance – how are you going to fund the startup or purchase of this business?
  • Team – what people and skills will you require now and into the future?
  • cash flow forecast – banks love these to be detailed. Use your Accountant for this;
  • milestones – what will the business look like in 1,2 5 10 years?

Most banks and investors want to see a sound Business Plan before they are willing to risk their funds with your business.

Xero have a couple of Business Plan templates that you can download and use.

Cash Flow forecasts are a great way to test your ideas. What sales do you need to break even? What sales do you need to pay yourself a decent wage? Speak to us to develop a cash flow forecast for your idea.

Business plans also allow you to confirm the viability of your business case, and improve your ideas, on paper before risking your cash. Running your plan by some trusted advisors and experienced business people can also highly improve your likelihood of success.

You may do the work on your Business Plan and realise that it is not currently viable. This is great as you have only invested a bit of your time. You may stop here and revisit this or keep adjusting your plan.

If your plan is looking good, and you have reviewed it with your Accountant and trusted advisors, it is time to look at putting your plans into action.


Step 3: Meet with your Accountant

Book a meeting with us. We deal with small businesses every day and have a wealth of experience with businesses that have been through the full lifecycle your business will go through. We can fill any gaps in your knowledge and potentially save you costly mistakes.

We can quote up a package to assist you with setting up your business structure, Accounting software and an ongoing plan to ensure you meet all of your tax and accounting obligations.

Setting your business up correctly from the beginning ensures that you have the highest chance of success as you build up your business.

Step 4: Choose a business structure

The next step is to choose a business structure. There are three main types of business structures in Australia. You need to consider the full life cycle of your business to choose what is right for you.

Cost, complexity of management and tax implications are all important considerations. Take some time to speak with us to get expert advice up front. This will save you any regrets in the future as you can make a fully informed decision.

Consideration must also be given to current and proposed ATO laws. Particularly those regarding Personal Services Income and Professional Profits. Speak to us about this.

The common choices for business structure are:

  • Sole trader: This is the simplest type of business structure. As a sole trader, the business is attached to you. You will be personally liable for the debts, liabilities and legal issues of your business.
  • Partnership: This is structure involving two or more people. Partners are jointly and severally liable for the debts, liabilities and legal issues of the business. This is rarely a good idea. Generally only used by spouses.
  • Company: These are the most common entity used by businesses. Companies are a separate legal entity from its owners. You would own shares in the company. You also need to select one or more people to be directors. Companies are limited liability entities, which means that the owners may not be personally liable for the debts and liabilities of the business – as long as the directors have not breached the corporations act. A company can sue and be sued. Companies can also retain profit and pay 25% company tax in most circumstances. Retained profit is paid out later via dividends.
  • Trusts – These are somewhat common for small business. You also need to form a Corporate Trustee (Company) to be trustee of the trust. Trusts must distribute ALL profits each year. There are certain advantages, and disadvantages to using a trust. The 2 main types of trust are:
    • Discretionary Trust – Directors of the trustee company have discretion as to how profit is distributed. This can be quite flexible.
    • Unit Trust – much like a company, owners buy units instead of shares. Distributions to unit holders is based on how many units are held as a % of the total units issued.

Step 5: Form your entity

Once you’ve chosen a business structure, you can work with your Accountant and legal advisor to form the entity. It is very important to get the paperwork correct at this step. We have seen and helped to correct many errors where people have tried to DIY this step.

If you choose a company, you will need to first get your MyGovID, then a Director ID, to be able to form a company.

Step 6: Get your Registrations

OK. Now you need to get comfortable with some acronyms. ACN, ABN, BAS, GST, PAYGW, ASIC, STP, ABR, not to mention the other things like ABRS, Director ID and MyGovID.

This is where you really need expert advice from your Wood Accounting to ensure you are setup correctly from day one.

Here is a quick run down of the most common small business acronyms everyone needs to become familiar with:

  • ABN (Australian Business Number) is a unique 11 digit identifier for your business. You need an ABN to operate a business in Australia.
  • GST (Good and Services Tax) is 10% added to most goods and services. You must register for GST if your turnover (income) will be more than $75,000 per year. GST is a user pays tax in that the end users end up paying the tax. So consumers that spend the most pay the most GST.
  • ACN (Australian Company Number) – a unique 9 digit number issued to all companies in Australia. Fun fact – your ABN is your ACN with 2 extra numbers added to the FRONT of the number.
  • ASIC (Australian Securities and Investment Commission) – The Australian regulator for companies. ASIC is responsible for promoting a fair, transparent and efficient financial system for all.
  • PAYGW (Pay as You Go Withholding) – This is a registration you must have in order to pay wages and with hold tax.
  • STP (Single Touch Payroll) – This is a new system that requires all businesses to submit each pay run to ATO in real time. Allowing ATO to have visibility on PAYGW and Super that is due for employees.
  • BAS (Business Activity Statement) – The is a monthly/quarterly/annual statement businesses lodge to report their GST, PAYGW, PAYG, FTC and other taxes payable for the period. Businesses use software such as Xero to capture this information and summarise it into the BAS.

Step 7: Finalise your Intellectual and Digital Property

Get your digital identity sorted ASAP. You will have checked all this out in your business plan but now you need to register:

  • Website domain names,
  • email systems,
  • social media tags – these are critically important digital assets
  • your logo and marketing collateral
  • Trademark – consider trademarking your logo, colours, tag lines etc. This will prevent others from using these to steal your business. Be aware that your business or company name DO NOT prevent others using them.

Step 8: Get your Systems Right

What systems are you going to use to run your business efficiently, so that you have a competitive advantage over your competition?

Each of your business functions will likely have a system. Most systems these days are digital cloud solutions.

Your Accounting system is the centre of any business. This provides the functions of payroll, quoting, invoicing, accounts payable, accounts receivable, bank reconciliations, reporting, BAS etc. Common solutions here are Xero and MYOB. Our preference is Xero due to it’s ease of use for the customer.

Secondary systems surround the core accounting system. These include, Job management systems, HR systems, POS systems, inventory systems, online store systems and many more.

Step 9: Open a business bank account

It’s important to have a separate bank account for your business. This will help you keep your personal and business finances separate. We always recommend a 2 account system.

  • 1 main bank account – for every day trading
  • 2 tax and super account – we have clients move their tax obligations to this account so that they have the $$ available when their tax obligations are due.

We do not recommend a certain bank but we do ask clients to use a bank that is able to connect bank feeds to Xero. Without this bookkeeping and BAS become a really painful experience.

Step 10: Get the right insurance

There are a number of different types of insurance that you may need for your business, such as business interruption insurance, public liability insurance, cyber insurance and workers’ compensation insurance. Worker’s Comp is compulsory for all businesses that have employees. That includes those who only employ the owners.

If you are unsure, speak to a business insurance broker for tailored advice.

Step 11: Get the necessary permits and licenses

Depending on the type of business you’re starting, you may need to obtain certain permits and licenses. For example, if you’re selling food, you’ll need a food handling permit. Tradies may need a new permit to add their new entity details to current licences.

Step 12: Market your business

Once you have your business up and running, you need to let people know about it. There are a number of different ways to market your business, such as online marketing, print advertising, and public relations.

Step 13: Have Fun!

Starting a business is a lot of work, but it can be very rewarding. By following these steps, you can increase your chances of success. Enjoy the process of building your own successful business.

Step 14: Think about your Exit Strategy

Building a business is like building a house. At some point in the future you may not fit with the business any more and need to move on. Again the 5 Ps come into play. Proper Planning Prevents Poor Performance. Think about and have a rough plan for some common scenarios:

  • Retirement
  • Sale after a planned time period
  • Illness or death – make sure you have personal wills and estate planning in place.
  • Shareholder/Unitholder agreements – if you are in business with other owners and directors get a legal agreement in place to clarify how changes in to ownership will play out.

As Accountants we can help plan these scenarios and refer you to lawyers who are experienced in drafting practical shareholder agreements. Book a chat to run through these steps.

Additional tips for starting a business in Australia

  • Network: Networking with other entrepreneurs can help you learn from their experiences and get advice and support.
  • Challenges: Starting a business is a challenging but rewarding experience. Speak to us at Wood Accounting for advice and support if you experience any challenges along the way.

How to Sell Your Business – Tax Free!


Australian small business CGT concessions: A simple overview

If you’re a small business owner in Australia, you may be entitled to a number of capital gains tax (CGT) concessions. These concessions can help you to reduce or defer the amount of CGT you pay when you sell your business or business assets.

What are the different small business CGT concessions?

There are four main small business CGT concessions:

  • 15-year retirement exemption: This concession allows you to exempt a capital gain from a small business asset if you are 55 years old or older and have owned the asset for at least 15 years.
  • 50% active asset reduction: This concession reduces the capital gain on an active business asset by 50%.
  • Small business retirement exemption: This concession allows you to contribute remaining capital gains to super tax free, or if you are over 55, take the funds personally, tax free.
  • Small business rollover: This concession allows you to defer a capital gain on an active business asset if you reinvest the proceeds from the sale of the asset into another active business asset.

Depending on the structure you own the business in you may also be able to claim the general 50% CGT Discount, before applying the above concessions. Expert advice is essential to ensure you optimise the order in which you use these concessions.

Who is eligible for the small business CGT concessions?

To be eligible for the small business CGT concessions, you must meet the following criteria:

  • You must be a small business entity. This means that your aggregated turnover for the year must be less than $2 million.
  • You must own the asset for which you are claiming the concession.
  • The asset must be an active business asset. This means that the asset must be used in your business to generate income.
  • Different rules apply depending on what structure you own your business within. Concessions apply to sole traders, partnerships, trusts and companies.

How do I claim the small business CGT concessions?

To claim a small business CGT concession, you are best to consult with an Accountant who is experienced in dealing with this complex set of concessions. At Wood Accounting we have many years of experience assisting clients maximise their benefits, and minimise any Capital Gains Tax. You may also need to provide additional information to the Australian Taxation Office (ATO), such as a valuation of the asset.

When should I speak to an accountant about the small business CGT concessions?

If you are thinking of selling your business or business assets, it is important to speak to an accountant to discuss your eligibility for the small business CGT concessions. An accountant can help you to calculate your potential CGT liability and advise you on the best way to structure your sale to minimise your tax.

Recommendation

If you are a small business owner in Australia and you are thinking of selling your business or business assets, speak to our experts at Wood Accounting for advice on how to minimise or eliminate your tax liability. Wood Accounting has a team of experienced accountants who can help you to understand the small business CGT concessions and ensure that you claim all of the concessions to which you are entitled.

ATO Small Business Technology Boost: A Guide to Deductions

Boost Your Small Business: We explain how to get an extra 20% deduction for your business spend on technology items

KEY POINTS:

  1. You must be a Small Business – ie. turnover less than $50million per year
  2. Eligible Expenses include:
    • Computer hardware
    • e-commerce services and subscriptions such as cloud based services
    • cyber security services
  3. TIMING – must incure the costs between 7:30 pm AEDT 29 March 2022 and 30 June 2023.
  4. GET ADVICE: Contact your Accountant now to discuss before the timeframe expires.
  5. EXAMPLE: Scroll down to see a worked example

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Introduction:

In today’s fast-paced digital era, small businesses need to stay competitive by embracing technology. The Federal Government has finally approved legislation to enact the Small Business Technology Investment Boost, provided by the Australian Taxation Office (ATO).

In this blog post, we’ll explore how this program can benefit your small business and how to leverage it to maximize deductions.

Understanding the Small Business Technology Investment Boost:

The Small Business Technology Investment Boost is an Australian government program aimed at encouraging small businesses to invest in technology. It offers an extra 20% tax deduction for eligible assets purchased and installed within the specified timeframe. By leveraging this boost, small businesses can enhance their operations, improve productivity, and gain a competitive edge.

Eligibility Criteria:

To qualify for the Small Business Technology Investment Boost, your business must meet the following criteria:

  1. SMALL BUSIENSS – your business must have an aggregated annual turnover of less than $50 million
  2. EXPENSE – Must already be a deductible expense for your business under taxation law
  3. ELIGIBLE EXPENSE – Must be for business items
    • digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks
    • digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design, video, podcasts etc.
    • e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services, and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth
    • cyber security – cyber security systems, backup management and monitoring services.
  4. TIMING – Eligible expenses must be incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2023.

Backdated:

You will note that this law is retrospective, covering expenses from 7:30 pm AEDT 29 March 2022 to 30 June 2023 despite only being legislated on 22 June 2023.

This means you will need to trawl back through past spending to capture eligible expenses

Qualifying Assets:

The program covers a wide range of technology assets that can help improve your business processes. Some examples of eligible assets include computer hardware, software, printers, scanners, and digital tools. It’s essential to ensure that the assets you plan to invest in align with the ATO’s guidelines to claim the tax deductions successfully.

Claiming Deductions:

To claim deductions under the Small Business Technology Investment Boost, you must adhere to the ATO’s instructions and guidelines. It is important to keep proper records of your technology investments, including invoices, receipts, and any relevant documentation. Your tax advisor can provide detailed guidance on how to correctly claim these deductions and maximize your tax benefits.

IMPORTANT NOTE: All eligible spends are claimed in the 2023 business tax return despite teh time frame stretching back 3 months into the 2022 income tax year (29 Mar 22 – 30 June 22).

Example of the Small Business Technology Investment Boost:

Let’s consider an example to illustrate how the Small Business Technology Investment Boost can benefit your business.

Suppose you own a small graphic design agency with an aggregated annual turnover of $30 million. You are a small business ✅

In November 2022, to keep up with the latest design software and hardware, you invested $20,000 in new computers, graphic tablets, and design software licenses.

  • These items are normal deductions to your business ✅
  • This is also within the time frame for eligibility ✅
  • These are eligible digital enabling items ✅

This spend would normally be a 100% tax deduction assuming no private usage of these items.

By taking advantage of the Small Business Technology Investment Boost, you can claim an EXTRA 20% tax deduction in your business tax return. $20,000 x 20% = $4000.

This deduction can significantly reduce your taxable income, resulting in lower tax obligations and more funds available for further business growth.

Assuming you operate a company structure you would save $4000 x 25% company tax rate = $1000.00

Conclusion:

The Small Business Technology Investment Boost offered by the Australian Taxation Office presents a valuable opportunity for small businesses to invest in technology and improve their operations. By understanding the eligibility criteria, investing in qualifying assets, and correctly claiming deductions, small businesses can leverage this program to maximize their tax benefits. Be sure to consult with a tax advisor to ensure compliance with all the necessary requirements. Embrace the power of technology and propel your small business towards success in today’s competitive landscape.

Small-Business-Loan-Form

How to get a business loan

Banks and other lenders offer a variety of loans, so make sure you investigate your options and find a loan that suits the needs of your business.

Deciding how much to borrow

Consider what source and type of finance will suit your needs.  The method of funding and term of the loan should match the purpose for which the loan is being used. 

Think realistically when assessing your financial needs.  Consider initial set-up costs.  Estimate how long before your business is likely to be self-supporting.  You should be able to demonstrate that you will be able to repay the loan, taking into account potential risks such as lower than predicted sales or interest rate increases. 

Applying for a loan

If you are starting up a new business and need to apply for a loan, the lender will require the following information from you: 

  • A description of the products and/or services you intend to provide
  • A marketing plan showing how you intend to bring in business
  • Evidence of the demand for your products and/or services.

You will also need to provide details of your own qualifications (both business and educational), previous business experience and past achievements.

Obviously, the amount you need to borrow and the purpose for which the loan would be used will need to be communicated to the lender, and repayment terms will need to be clearly established. 

If possible, financial information such as sales and profit projections over the term of the loan should be provided to the lender together with a cash flow forecast, showing the loan repayments, for the 12 months ahead.

Likely, the lender will seek security from you to protect the loan and this can vary from one lender to another and will depend on the type of loan and amount to be borrowed.  Some generally acceptable forms of security are:

  • real estate
  • shares in public companies
  • a personal guarantee.

Your loan application is more likely to be successful if you provide the lender with a well written Business Plan which includes: 

  • your business goals and objectives
  • results of your market research which support your financial projections and anticipated borrowings
  • systems you intend to implement to enable you to monitor your business and respond to changes in your financial position.

YOUR ACTION PLAN

  • Have your Business Plan ready.
  • Prepare financial information including a cash flow forecast.
  • Seek expert advice. We can assist you.
  • Decide on a form of security
  • Speak with a finance broker

Contact Wood Accounting team today. We have numerous finance broker connections who are experts in Business Finance